Financial Planning for Divorce: Is it Ever Too Early?
Is it ever too early to start planning for a divorce? Sadly, the answer is “no.” While nobody enters into a marriage thinking it will end in divorce, for many couples, this will be the ultimate outcome. That does not mean the day after the wedding couples should start writing their names on the backs of dishes and the new LED TV. But that also does not mean couples should blindly enter into their marriages either. The most frequent issue clients raise when first meeting with me are the fights and arguments over finances. Many of those arguments stem from one party controlling all of the finances and the other spouse being left in the dark during the marriage.
Clients have come in and told me that they had no idea the other spouse racked upwards of $30,000 in credit card debt. In many of those instances, the clients were secondary cardholders on those cards and only became aware of the debt when the credit card companies started calling them asking for payment. Other times, clients have said that they have no idea how much their spouse earns, and even worse, that they have not even seen a tax return in years even though they were jointly filed.
During the divorce proceeding, we can appropriately deal with the above issues of the other spouse withholding information or outright lying to my client. The long-term concern for my client though is that they do not have an understanding of their own finances. This is essential if they are going to be separated and/or divorced in the near future and starting a new life on their own.
An easy task that I tell every client is to run a credit report and to make sure nothing is listed on it that they are not already aware of. Federal law permits everyone a free credit report every 12 months from each of the three agencies, Experian, TransUnion and Equifax. That means each year you can run three separate credit reports for free and see if any debts are listed that were incurred without your knowledge.
The tougher task for the client is having a frank discussion with your spouse about your financial picture, preferably done before matters heat up. If this is not feasible, you may need to do some sleuthing and contact financial institutions where you have joint accounts. As long as you are listed as an account holder for the account, you can absolutely call or go in person to the institutions and ask to see account statements. Keep in mind, if you are thinking about a divorce, it is very likely your spouse is too. And while you are not taking any unethical or improper actions, it is entirely possible your spouse is. This can include moving money from a joint account into an account in their own name or even to a third party like a family member. It is exponentially more difficult to have money returned once it leaves an account versus taking measures to prevent the other spouse from removing the money in the first place. So the more you keep tabs on accounts, the less of a chance money will go missing down the road.
Being proactive during the marriage and ensuring that you have a handle on the finances will hopefully help you to avoid at least some of those arguments. But in the event that a divorce is imminent regardless, having that knowledge will put you in a much stronger position during the divorce process and afterward.